Commodities Report: BP Boosts Bet on Biofuels -- WSJ

Date : 07/23/2019 @ 8:02AM
Source : Dow Jones News
Stock : Bp Plc (BP.)
Quote : 490.2  0.5 (0.10%) @ 4:35PM

Commodities Report: BP Boosts Bet on Biofuels -- WSJ

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Company enters into joint venture with Bunge to make ethanol from sugar cane

By Sarah McFarlane 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 23, 2019).

Energy giant BP PLC is doubling down on biofuels with a joint venture with agricultural trader Bunge Ltd. in Brazil, betting that the global movement to reduce carbon emissions will boost demand for low-carbon fuels.

The two companies have combined their sugar and ethanol businesses to create the second-largest sugar cane crushing operation in Brazil, called BP Bunge Bioenergia. The venture will produce ethanol from sugar cane.

Ethanol's greenhouse gas emissions are around 70% lower than hydrocarbon transport fuels, and around 70% of vehicles in Brazil can run on ethanol. The joint venture will also produce electricity from the waste biomass of the sugar cane.

BP will pay Bunge $75 million and the equally owned joint venture will assume $700 million of non-recourse debt associated with Bunge's assets. The stand-alone joint venture includes BP's three sugar cane crushing mills and Bunge's eight mills, with combined capacity to crush 32 million metric tons a year.

The mills yield around 60% ethanol and 40% sugar, and there is some flexibility to adjust these ratios, said Dev Sanyal, chief executive of BP Alternative Energy.

Some countries, including Brazil and the U.S., mandate a minimum amount of ethanol is blended with gasoline. Brazil is already the world's leading biofuels market as a share of the country's transport fuel mix.

"Biofuels will be an essential part of delivering the energy transition and Brazil is leading the way in showing how they can be used at scale, reducing emissions from transport," said Bob Dudley, BP chief executive.

Brazil is the world's second largest ethanol market behind the U.S., having adopted policies to use more biofuels in the 1970s when oil prices surged after the Organization of the Petroleum Exporting Countries halted exports to some countries.

The joint venture follows a similar move by Royal Dutch Shell PLC and Brazilian sugar and ethanol producer Cosan Industria e Comercio SA in 2010, when they formed Brazil's top cane crusher Raizen.

Sugar producers have struggled with lower prices in recent years with booming output in top-producing nations, including India and Thailand, causing global stocks to build.

Meanwhile, Brazil's ethanol market has been supported by strong demand. The government plans to introduce new mandates for fuel distributors to increase their biofuel sales from 2020.

Bunge started reviewing its South American sugar business in 2013 and had looked at options including a sale or initial public offering, the company has said. It sold its sugar trading business to Wilmar International Ltd in August last year.

Write to Sarah McFarlane at sarah.mcfarlane@wsj.com

 

(END) Dow Jones Newswires

July 23, 2019 02:47 ET (06:47 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.


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